The prospect of a rainbow coalition caused jitters in the financial markets yesterday.
When a deal between the Conservatives and the Lib Dems looked imminent yesterday afternoon, Sterling rose above $1.50 having begun the day at $1.483, but Gordon Brown’s announcement of his plans to step down and the commencement of parallel talks with Labour sent the pound tumbling to $1.4850.
Currency traders fear that such an unstable coalition, which would only command a majority with the additional support of the likes of Plaid Cymru and the SNP, would lack the authority to tackle the UK’s £163bn deficit.
Harry Adam of foreign exchange firm Schneider says the markets want only one outcome: "The fall confirms that the market is looking for a Conservative government - and anything else won't do. If it doesn't happen, the pound will tumble even further."
David Buik, a partner at the broker BGC Partners, says: “A Labour-Lib Dem coalition would be an unmitigated disaster for the markets because of the lack of a plan to tackle the deficit immediately.”
In a British Chambers of Commerce survey, 45% of business leaders said they wanted a Conservative-led Government in situ at Number 10, with only 14.8% preferring a Labour-led coalition.
